Shares of Boeing Co. (BA) rose to a 26-month high Tuesday following a nearly $4 billion contract win to supply submarine-hunting aircraft to the U.S. Navy, a victory some analysts said was a surprise.

The Navy aircraft will be based on the popular 737 commercial airplane, a jet favored by many airlines around the world, and delivery will start in 2009.

Boeing's win of the Multi-mission Maritime Aircraft (search) contract, one of the biggest defense contracts of the year, was announced after the close of trading Monday. Chicago-based Boeing beat out rival Lockheed Martin (LMT).

The win was a big plus for Boeing, which has seen its deal to sell and lease modified 767 air refueling tankers to the Air Force stalled until at least next year.

Credit Suisse First Boston analyst Jim Higgins said in a research note that the value of the program to replace the Navy's P-3 Orion (search) fleet of 223 aircraft with as many as 109 modified 737s over a 10-year production run was estimated at $15 billion to $20 billion.

"Our sense is that conventional wisdom had placed a high probability on a win for Lockheed Martin since its proposal was a derivative of the company's original P-3 design," he said.

Shares of Bethesda, Md-based Lockheed, the largest U.S. defense contractor, rose slightly after dipping earlier on Tuesday morning.

The S&P Aero/Defense index (search) was about 1 percent higher at 248.04.

Higgins also said the MMA win should "help dispel the notion that Boeing remains in the 'penalty box' for recent troubles."

Banc of America Securities analysts agreed the news was positive and may translate into international sales.

"For Boeing, this is another positive data point that may propel the stock through the $50 mark, even if it has little impact on near-term earnings," the company said in a note.

Boeing, both the No. 2 U.S. defense contractor and the No. 2 maker of commercial airplanes, has been rising recently despite image problems related to its military business.

Boeing shares recently hit a two-year high after Chief Executive Harry Stonecipher gave a bullish outlook for various programs including the launch of the new 7E7 jetliner and defense contracts. The shares topped that high early Tuesday.

J.P. Morgan analyst Joe Nadol said in a note that while the Lockheed plane might have been able to fly at lower speeds and loiter more effectively, "Boeing's 737 solution has commonality with current and future 737-based platforms and a large existing spares and support network, which helped it prevail."

Wachovia Securities analyst Rob Spingarn said he was raising estimates on Boeing's earnings for 2004 to $2.12 per share from a previous estimate of $2.10 and for 2005 to $2.36 per share from a previous $2.30.

"At a 17 percent premium to the S&P 500 on blended 2004/2005 (estimated) earnings, investors seem to expect further increases," he said.

Shares of Boeing were up 67 cents or 1.4 percent at $49.50 on the New York Stock Exchange (search) Tuesday, off an earlier high at $49.70. Lockheed shares were up 25 cents or 0.5 percent at $50.70.